Message from the
President

Let me now touch on the performance of our business units in greater detail.

Ayala Land continued to reap the benefits of its diversification strategy to achieve a better balance between its development and recurring income portfolio as well as in its geographic concentration. Its net profits rose 13 percent to ₱33.2 billion, supported by office and commercial and industrial lot sales as well as a growing leasing operation.

Ayala Land’s recurring income portfolio, which includes office and mall leasing, hotels and resorts, and property management, continues to expand at a faster pace than its development income. It has recorded a compounded annual growth rate of 25 percent since 2013. This has outpaced Ayala Land’s development income, which includes residential and office and lot sales, which posted a compounded annual growth rate of 17 percent during the same period. Meanwhile, Ayala Land’s geographic diversification continued, with new estates contributing 58 percent to its bottomline as the development of these areas accelerate.

In 2019, Ayala Land launched three new large-scale, integrated, mixed-use developments, bringing its total estates to 29. These new estates—the 120-hectare Broadfield in Laguna, the 11-hectare the Junction Place in Quezon City, and the 290-hectare Crescendo in Tarlac—enhances Ayala Land’s presence in Metro Manila and in Luzon.

Bank of the Philippine Islands continued to work towards its goals of improving its earnings capacity and shareholder returns by focusing on its core lending business and increasing efficiencies through technology. In 2019, the bank’s net earnings reached ₱28.8 billion, jumping 25 percent from 2018 on strong core banking business revenues and a steadily growing fee-based segment, supported by higher securities trading gains.

By 2023, BPI is targeting to double its net income to ₱57 billion and achieve a 15 percent return on equity. To achieve this, it is ramping up its retail, SME, and micro lending segments while remaining focused on strong asset quality through various initiative such as the creation of dedicated SME and microfinance groups and moderate branch expansion. Moreover, the bank is scaling up its fee-based business by shifting focus from trading to transaction-based services such as credit cards, asset management, payments, and insurance. Finally, BPI’s digitalization efforts are expected to achieve low-cost funding, increased operational efficiency, and higher engagement from the unserved and underserved markets.

In microfinance, BPI achieved its target of 300 BanKo branches, servicing more self-employed microentrepreneurs nationwide. Its digitalization efforts likewise continued to bear fruit, with digital penetration now at more than 20 percent between its retail and corporate clients.

Globe continued to benefit from high demand for data-related products and services. The 20 percent expansion in its net income to ₱22.3 billion was bolstered by data-driven customers across its mobile and broadband segments. It is worth noting that data-related services accounted for over 70 percent of Globe’s service revenues, which grew 12 percent to ₱149 billion during the year.

Globe continues to invest to enhance its network quality and improve customer experience. It spent ₱51 billion in capital expenditures to fast-track its network rollout, increasing its sites by 139 percent and its 3G and 4G base stations by 28 percent.

On the mobile money front, Globe’s GCash continues to promote financial inclusion and expand the mobile money ecosystem. At yearend, GCash had 20 million registered users, and over 75,000 QR merchants and partner billers. Further, GCash introduced innovations during the year to offer more financial services to the unbanked. One such innovation is GSave, a digital savings account opened directly from the GCash app. GSave offers a competitive interest rate with no minimum initial deposit or maintaining balance requirement.

As it moves away from thermal energy, AC Energy continues to build up its renewable portfolio. It ended 2019 with an attributable capacity of over 1,800 MW, with 50 percent of total energy output coming from renewable sources. In addition, it has 1,200 MW of various solar and wind projects in the pipeline, bringing it on track to achieve its attributable capacity target of 5,000 MW of renewable energy by 2025.

AC Energy registered net profits of ₱24.6 billion in 2019, lifted by contributions from its solar projects in Vietnam and gains from the partial divestment of its thermal assets. AC Energy increased its attributable energy output in 2019 by 25 percent to 3,500 gigawatt hours, of which 50 percent came from renewable sources. Given the increasing contribution of AC Energy to Ayala’s equity earnings over the past three years, we have started to classify AC Energy as one of our core business pillars together with Ayala Land, BPI, and Globe.

To support its renewable energy investments, AC Energy tapped the capital market through the issuance of two Green Bonds, raising US$810 million in combined proceeds. The first issuance, which raised US$410 million was the first Green Bond to be certified by the Climate Bond Initiative in Southeast Asia. AC Energy also issued the first US dollar denominated fixed-for-life Green Bond to be issued globally, raising US$400 million in proceeds.

As mentioned, the challenges in the East Zone concession weighed on Manila Water’s performance in 2019. The water crisis took a toll on Manila Water’s profitability, which declined 16 percent to ₱5.5 billion. Business performance was dampened by the impact of the MWSS penalty and a voluntary one-time bill waiver program to assist severely affected customers. This was further affected when raw water allocation from Angat Dam hit its lowest in July. To mitigate this, Manila Water implemented network efficiency measures to maintain service availability at the ground floor level and be able to serve more than 7 million people across over 1.3 million households in the East Zone.

Manila Water likewise continued to work towards its goal of providing 32 percent wastewater coverage of the East Zone by 2021. Wastewater coverage currently stands at over 30 percent or equivalent to two million people served through nearly 400 kilometers of laid sewer network. This was only at three percent before Manila Water took over operations from MWSS in 1997.

AC Industrials faced a challenging year due to the difficulties in global manufacturing and the automotive industries. These challenges also included the impact of geopolitical tensions, such as the US-China trade conflict and prolonged uncertainty on Brexit. These macro headwinds together with the disruptive changes currently sweeping many key industries have created a challenging environment for worldwide manufacturing and trade.

In the electronics space, intensifying competition posed operational challenges to players like AC Industrials, particularly its anchor manufacturing arm, IMI, and new platforms Merlin Solar and MT Technologies. These challenges resulted in longer fulfillment times and higher material costs.

Meanwhile, automotive sales likewise experienced weakness and the industry’s megatrends of connectivity, autonomy, sharing, and electrification continued to disrupt the industry. In this difficult environment, AC Industrials recorded a net loss of ₱2.4 billion in 2019.

During these trying times, we take comfort in the fact that AC Industrials retains specialized technical resources such as advance manufacturing engineering as well as proprietary technologies, including power electronics, camera and vision, smart energy, and connectivity, which all serve as the foundation for future growth.

Finally, we continue to support our long-term investments in infrastructure, healthcare, and education. AC Infra is building up its logistics and fulfillment arm, Entrego, which posted a compounded monthly growth of 14 percent in volume throughout the year. This growth was underpinned by the rising demands of the e-commerce and retail sectors for B-to-B and B-to-C logistics services. Entrego also launched an automated sorting center to drive operational efficiencies and processes.

AC Health acquired a 100 percent stake in Healthway, one of the leading clinic networks in the country. The addition of Healthway’s seven mall-based multi-specialty clinics and 41 corporate clinics expands AC Health’s clinic portfolio, which today includes 74 FamilyDOC primary care clinics and 10 corporate clinics. It also expanded its pharma portfolio with new investments into IE Medica, one of the major importers of pharmaceutical products in the country, and MedEthix, its affiliated distribution company.

AC Education’s merger with iPeople in 2019 has significantly broadened our education footprint. Our student population has grown from 38,500 before the merger to approximately 59,300 students. The merger has resulted in several synergies, including leveraging the various schools’ complementary strengths to improve student learning experience and producing greater operational efficiency.

As the Ayala group continued to be optimistic about the domestic macroeconomic environment, our combined capital expenditure reached ₱215 billion in 2019. At the parent level, our balance sheet remained strong with enough capacity to support our future investments and cover dividend and debt obligations. In 2019, we paid ₱8.30 per share in cash dividends, 20 percent higher than its 2018 level. We likewise took advantage of favorable market conditions to raise capital.

This included the US$400 million in fixed-for-life senior perpetual notes with an annual coupon of 4.85 percent with no step-up, and the ₱15 billion in preferred shares.

In closing, at Ayala, we constantly strive to deliver a more holistic engagement with the communities we serve and make sure that we create a meaningful, lasting impact in conjunction with our economic aspirations. We remain committed to the UN Global Compact and its 10 principles, which are very much aligned with our own sustainability philosophy in the Ayala group. This desire to help bridge societal gaps has been embedded in our corporate culture and will continue to define our direction in the coming years. We are fortunate to have so many individuals in our institution who share this thinking and enable its execution across our many companies in the Ayala group.

Ayala owes its success to the commitment of our shared vision across the rest of the group’s management team and staff, the guidance and leadership of our Board of Directors, and the trust and confidence of our many stakeholders. We thank you all for your continued commitment and support.

FERNANDO Zobel de Ayala
President and COO